South Dakota's insurance oversight lacks bite

Report: State agency needs more authority to protect consumers

Jun. 28, 2013

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The South Dakota Division of Insurance lacks the legal authority to adequately protect consumers who are abused by insurance companies and unfair claims practices, a report released by Gov. Dennis Daugaard’s office said Thursday.

As a result of not having that legal authority, the division cannot order insurance companies to pay claims that a company should be paying, and the division does not have the authority to fine insurance companies without the consent of the companies. Nor does the division have the legal authority to order restitution to claimants who are treated unfairly.

The report recommended that the division draft legislation to address those issues. The proposed laws giving the division more enforcement authority to protect consumers would have to be approved by the Legislature.

That was one recommendation in the report among several others aiming to improve consumer protections.

Daugaard ordered a review of the division on June 5 following an Argus Leader investigation into the claims practices of Ability Insurance, an Omaha company that purchased the long-term care insurance policies of about 60,000 people nationwide, including more than 2,300 people in South Dakota.

The investigation found that Ability had refused to pay claims submitted by elderly policyholders that it should have paid, and it found that the Division of Insurance — the entity responsible for protecting consumers — did not force the company to pay legitimate claims. The investigations also found that the division failed to take action against the company, even though it had evidence the company was violating state laws.

The report released Thursday was produced by Pamela Roberts, the secretary of the Department of Labor and Regulation.

She found that, before 2010, justified complaints against long-term care insurance companies were erroneously closed by the division. The report noted that the manager who handled complaints between 2006 and 2010 no longer was working at the division.

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Dave Beyer’s family submitted a complaint to the division in 2007 on behalf of his mother, Betty Beyer, who had been denied coverage under her long-term care policy, even though her doctor had certified her need for an assisted-living facility. The division did not act on the complaint.

Dave Beyer said Thursday that he was happy Daugaard ordered a review of the division. He said he thinks the law that doesn’t allow the division to fine a company without the company’s consent should be changed to give the division more authority to protect consumers.

“That’s really protecting the insurance company, even if they do wrong,” he said of the current law.

Tony Venhuizen, Daugaard’s director of policy and communications, said the report shows that there is room for improving the processes of how investigations are conducted and tracked by the division. He noted that the governor ordered a reorganization of the division in 2011, and that some issues identified in the report had been corrected.

“Some of the problems occurred back in 2010 or 2011 and had already been recognized and fixed since then, but obviously not retroactively,” he said.

Roberts’ report also concluded that the division fails to inform the public about the findings of market conduct examinations, and it recommended that the division post examinations on its website and issue a news release at the conclusion of any major investigation.

The report recommended that the division should draft legislation that would allow consumers to be informed about ongoing investigations.

In a statement, Daugaard praised the report, and he directed that the recommendations be implemented.

“The Division of Insurance has the difficult task of balancing consumer protection and business needs,” he said. “While perfect equilibrium will never be possible, implementing these recommendations will increase the balance between the division’s priorities.”

The division has until Sept. 30 to complete the draft legislation. Venhuizen said Daugaard will review the drafts before signing off with his approval.